India’s Q4 GDP growth has surged to a four-quarter high of 7.4%, beating expectations and lifting the full-year FY25 GDP to 6.5%, according to data released by the Ministry of Statistics on May 30. This stronger-than-expected growth reflects a boost from government-led capital expenditure, rising private investments, and seasonal momentum.
The India’s Q4 GDP growth figure outperformed most analyst estimates and has strengthened optimism around India’s long-term economic resilience despite global uncertainty.
What Drove India’s Q4 GDP Growth? Capex, Rural Demand, and Construction
The standout driver in India’s Q4 GDP growth was investment demand, propelled by a back-ended surge in public capex and increased private sector capital formation. Capital formation rose 9.4% year-on-year, the highest in six quarters, while gross fixed capital formation rose to 33.9% of GDP, signaling a robust pipeline of infrastructure development. Construction grew an impressive 10.8%, up from 8.7% a year ago, and agricultural output spiked 5.4%, thanks to favourable rural dynamics and improved rabi harvest.
Private consumption also recovered sharply, growing 7.2% YoY, helped by cooling retail inflation and festive demand. However, manufacturing remained a laggard, growing 4.8%, sharply down from 11.2% in Q4FY24, despite recovering from previous quarter lows.
GDP vs GVA: The Tax Factor and What It Hints
While headline GDP soared, Gross Value Added (GVA) stood at a lower 6.8%, reflecting subdued real economic momentum. The gap between GDP and GVA widened due to a sharp rise in net indirect taxes, which jumped 12.7% in real terms and 22.7% in nominal terms. Analysts, including Upasna Bhardwaj from Kotak Mahindra Bank, noted that this surge in tax revenue inflated GDP figures, partly masking the real pace of economic activity.
Despite this, sectors like agriculture and construction showed genuine strength, highlighting India’s broad-based resilience amid global trade disruptions, rising tariffs, and the ongoing Russia-Ukraine war escalation.
RBI June Policy Preview: Rate Cut or Wait and Watch?
The next RBI Monetary Policy Committee (MPC) meeting is scheduled for June 4-6, 2025, with the policy statement expected around 10:00 AM on June 6. After delivering a 25 basis points repo rate cut in February, the central bank faces a finely balanced situation. On one hand, retail inflation has eased to a six-year low of 3.16% in April, and the monsoon forecast is favourable. On the other, GDP growth has outpaced forecasts, which might reduce the urgency for aggressive easing.
Markets are pricing in another rate cut possibility in the June policy, especially if inflation remains soft. A supportive rate environment could further boost investment momentum heading into FY26.
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Looking Ahead: Slower FY25, But India Still Fastest Growing Major Economy
Despite the strong Q4 finish, India’s Q4 GDP growth at 6.5% marked the slowest pace in four years, down from 9.2% in FY24. However, it still kept India at the top of global growth charts. The International Monetary Fund (IMF) projects that India may surpass Japan by the end of 2025 in terms of nominal GDP size, reaching $4.18 trillion.
Key risks for FY26 include rising global protectionism, oil price volatility, and slowing global trade. Yet, with rural demand reviving, private capex intentions rising, and interest rates likely to stay benign, India’s growth engine seems well-oiled for the road ahead.
Conclusion:
India’s Q4 GDP growth came as a positive surprise, reaffirming the economy’s resilience. While full-year growth was slower, the underlying strength in investment and rural demand sets a hopeful tone for FY26. All eyes now turn to the RBI’s June policy, which could set the course for future growth support.
Disclaimer: The views and investment insights provided here are based on publicly available information and do not constitute financial advice. Readers are advised to conduct their own research or consult certified financial experts before making investment decisions.
